looking at next year, we have about $82 million coming off the payroll, so there is space to keep Harper

My guess is that it's a moot question, he's leaving. But even if he wanted to stay here and even if there was no cap I'd be OK with the team passing on making a massive offer, with his injury history that is too much money to tie up with one player.

In the last round of CBA negotiations the players won on quality of life issues such as extra seats on spring training buses, clubhouse chefs, scheduling and extra days off, but lost on economic issues, such as the Competitive Balance Tax. The CBT, which imposes a “luxury tax” on payrolls that exceed a defined threshold, has become a soft cap that is hardening.

While revenues were skyrocketing, the 2016 CBA barely raised the threshold (this year, for instance, it’s $197 million, or only 4% greater than what it was four years ago) and increased penalties (surtaxes and a draft position penalty for the most extreme offenders).

The CBT alone has kept the Dodgers and Yankees out of major free agent bidding. Agents can’t even use them as leverage. Both teams have a business plan driven by staying under the threshold this year in order to re-set their tax rate in 2019 from 50% of the overage to 20%—a potential annual savings of about $12 million just on a potential Bryce Harper signing.

Over the past decade, the rise in the CBT threshold (32%) has not nearly kept pace with the rises in the average salary (52%) or revenues (67%). “The [cap] effect is real—very real,” said one agent. “It’s something that needs a very hard look next time around.”

What looms as just as stifling a factor on the market, certainly this year and likely for the foreseeable future, is the new collective bargaining agreement, which enables clubs to reset their competitive balance tax if they are able to stay under pre-determined payroll thresholds (this year $197 million). Whether they realized it or not, by bargaining this provision Tony Clark and the Players Association in effect established a salary cap for the owners. Marvin Miller must be rolling in his grave. Throughout all his rancorous (and ultimately successful) labor negotiations in the ’60s and ’70s, Miller’s pat expression was, “the owners are asking the players to protect them from themselves.”

Well that’s exactly what’s happened this year with the Yankees and Dodgers both feverishly maneuvering to stay under the $197 million threshold. If the Yankees are somehow unable to stay under it, they will be taxed at 60% of their overage this year, and 90% if they go over it again in 2019. But if they do stay under it, their overage tax goes back to 20% in 2019. It’s a no-brainer, but in the meantime it has taken them out of the running for any of the frontline free agent starters: Arrieta, Darvish or Cobb.

Without the payroll threshold restraint, you can bet the Yankees would have surely signed one of those three. With all their vast revenues, what do they care what their payroll is — especially next year with the extra $50 million payout each club is getting from MLB’s sale of BAMtech to Disney?

This article about the Dodgers contains a couple interesting bits of information. Any cash included in a trade is counted against the payer's cap space for the upcoming season. And the exact value of the benefits being applied against all team's caps is $14,044,600.

Quote

The Dodgers’ tax payroll projects to $183 million, including $10 million for the rest of their 40-man roster, a $10 million charge for cash transactions in trades, plus benefits totaling $14,044,600.

Still, if the Nationals exceed the threshold by even $10 million at a 30 percent penalty, they would not seem to be crippling themselves financially. But analyzing their finances always requires a different lens than one might take for others. Nationals ownership is, to put it diplomatically, careful with its spending. Though no one can argue the organization is unwilling to spend (particularly in the wake of a season that ended with the fifth-highest payroll in baseball), those in charge do take notice of seemingly small sums. The exemplary story, told by many in the organization, is that ownership took weeks to approve just $3 million to sign Stephen Drew last winter. A competitive balance tax penalty of $3 million will not go unnoticed.

I felt like they simplified the matter. It's not that the Nats won't sign Arrieta because of the CBT. It's that Rizzo doesn't think that the current version of Arrieta is worth exceeding the CBT. Particularly if he wants to make a move at the deadline that will take them into that money.

I've said it before and I'll say it again, they are at a 30% tax on their overages. Sure, they want to reset next year, but they are ALREADY OVER THE THRESHOLD. They will be paying 1.5 Million in tax this year if they don't get below the threshold. If they add someone at 20 Million a year, that adds an additional 6 Million in tax. I wouldn't be surprised if they aren't trying to flip Wieters if he continues to have a good spring, and trade for a catcher, even a Tyler Flowers if the Braves make him available, or wait out the Marlins for Realmuto and try and get him at the deadline. If they did something like that, it would make the tax hit closer to 5.5 Million.

The luxury tax raises to 206 Million next season and the Nats have nearly 74 Million in AAV taxed salary coming off the books at year's end. Add in Arrieta at 20 Million and there is still enough for the potential to bring back Harper or Murphy, or add another second tier bat. I'm really starting to think letting Bryce walk is best for the team in the long run because Robles looks to be the real deal and there is a lot of hope in Soto, and both of them in the outfield is arguably better than one Harper.

I've said it before and I'll say it again, they are at a 30% tax on their overages. Sure, they want to reset next year, but they are ALREADY OVER THE THRESHOLD. They will be paying 1.5 Million in tax this year if they don't get below the threshold. If they add someone at 20 Million a year, that adds an additional 6 Million in tax. I wouldn't be surprised if they aren't trying to flip Wieters if he continues to have a good spring, and trade for a catcher, even a Tyler Flowers if the Braves make him available, or wait out the Marlins for Realmuto and try and get him at the deadline. If they did something like that, it would make the tax hit closer to 5.5 Million.

The luxury tax raises to 206 Million next season and the Nats have nearly 74 Million in AAV taxed salary coming off the books at year's end. Add in Arrieta at 20 Million and there is still enough for the potential to bring back Harper or Murphy, or add another second tier bat. I'm really starting to think letting Bryce walk is best for the team in the long run because Robles looks to be the real deal and there is a lot of hope in Soto, and both of them in the outfield is arguably better than one Harper.

Not sure how their business is set up but they are likely getting large tax decreases like every other business.

Not sure how their business is set up but they are likely getting large tax decreases like every other business.

But it won't factor into the CBA's luxury tax threshold. The luxury tax is based off of AAV of deals and player benefits. I think it won't be hard for the team to get under the threshold next season (especially since it jumps up 9 Million to 206 Million) and re-set the penalties.

But it won't factor into the CBA's luxury tax threshold. The luxury tax is based off of AAV of deals and player benefits. I think it won't be hard for the team to get under the threshold next season (especially since it jumps up 9 Million to 206 Million) and re-set the penalties.

Not sure you understand. Any additional luxury "tax" they pay to MLB rescues their income (or increase a loss). If they can write that loss off against other businesses they save some federal and state taxes. Also any of their other profitable business will be paying less in federal taxes this year and in the future because of the new tax law. So they can absorb a few million more in MLB competitive balance tax if they really want to.

What accounts for the apparent increase in GM IQ over the last decade? Ten years ago, Arrieta gets a massive deal from the Yankees.

Teams figured out that it’s really expensive to do a salary dump. That Kemp-AGonz trade a few months ago was nuts. Money right out the window. Nobody wants to get stuck holding the bag any more. That’s a big part of what is currently crippling the Tigers.

Not sure you understand. Any additional luxury "tax" they pay to MLB rescues their income (or increase a loss). If they can write that loss off against other businesses they save some federal and state taxes. Also any of their other profitable business will be paying less in federal taxes this year and in the future because of the new tax law. So they can absorb a few million more in MLB competitive balance tax if they really want to.

And they probably will, for the right player on the right deal. Arrieta (the focus of the Forbes article) isn’t that guy, unless he’ll sign on a 2-year deal. The Forbes article mistakenly implies that the luxury tax is a primary reason for the Nats avoiding Arrieta, when really it’s years 3-6 of the contract that are killing the deal.

Not sure you understand. Any additional luxury "tax" they pay to MLB rescues their income (or increase a loss). If they can write that loss off against other businesses they save some federal and state taxes. Also any of their other profitable business will be paying less in federal taxes this year and in the future because of the new tax law. So they can absorb a few million more in MLB competitive balance tax if they really want to.

My statement was only towards what they have to pay towards the luxury tax to MLB and I have ZERO concern over what the team actually has to pay in real taxes. I mean, great if there is a way for them to recoup some money by going over the MLB threshold and having to pay a penalty to MLB.

I've said it before and I'll say it again, they are at a 30% tax on their overages. Sure, they want to reset next year, but they are ALREADY OVER THE THRESHOLD. They will be paying 1.5 Million in tax this year if they don't get below the threshold. If they add someone at 20 Million a year, that adds an additional 6 Million in tax. I wouldn't be surprised if they aren't trying to flip Wieters if he continues to have a good spring, and trade for a catcher, even a Tyler Flowers if the Braves make him available, or wait out the Marlins for Realmuto and try and get him at the deadline. If they did something like that, it would make the tax hit closer to 5.5 Million.

The luxury tax raises to 206 Million next season and the Nats have nearly 74 Million in AAV taxed salary coming off the books at year's end. Add in Arrieta at 20 Million and there is still enough for the potential to bring back Harper or Murphy, or add another second tier bat. I'm really starting to think letting Bryce walk is best for the team in the long run because Robles looks to be the real deal and there is a lot of hope in Soto, and both of them in the outfield is arguably better than one Harper.

If they add $20 million they will trigger the 42%tax, so they'll pay 72% on that last year couple million. Not that much extra, but the real impact of signing a big contract now could be reluctantance to make a big move in July.

My statement was only towards what they have to pay towards the luxury tax to MLB and I have ZERO concern over what the team actually has to pay in real taxes. I mean, great if there is a way for them to recoup some money by going over the MLB threshold and having to pay a penalty to MLB.

You have to take into consideration their other businesses. The team is just another part of the Lerner empire.

And they probably will, for the right player on the right deal. Arrieta (the focus of the Forbes article) isn’t that guy, unless he’ll sign on a 2-year deal. The Forbes article mistakenly implies that the luxury tax is a primary reason for the Nats avoiding Arrieta, when really it’s years 3-6 of the contract that are killing the deal.

I would say he is getting a 5 year deal max. I'm thinking this model will work for Arrieta over a 5 year deal:

If they add $20 million they will trigger the 42%tax, so they'll pay 72% on that last year couple million. Not that much extra, but the real impact of signing a big contract now could be reluctantance to make a big move in July.